Suppose a stock will pay $10 per share dividend in one year’s time.
The dividend is projected to grow at 8% the following year, and then 4% per year indefinitely after that.
To clarify, dividend at beginning of year 1 (that is, one year from today) is:
$10
Beginning of year 2 (2 years from today) is:
$10 * 1.08
Beginning of year 3 (3 years from today) is:
$10 * 1.08 * 1.04
and a 4% rate of growth every year after that.
The required return is 6%. What is the stock’s price today?

 

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You are evaluating a product. The market demand for the product can be low or high.
The product requires an investment of $1000.

If the market demand is high, the product will have a payoff of $2000. If the market demand is low, the product will have payoff of $900.

You do not know whether the market demand is high or low, but you know the probability that the market demand will be high is 70%, and that it will be low is 30%.

Given the above information, you calculate the NPV to be:

(0.7*2000 + 0.3*900) – 1000

Now, a market research organization offers to complete survey to determine whether the demand will be high or low BEFORE you make the 1000 investment.

What is the value of the survey to you? That is, the maximum amount you would be ready to pay to have the survey conducted?

(Your answer should be positive)

 

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